I. definition of mainstream
In financial theory, risk is defined as volatility.
II. Define risk as the cause of fluctuation
This is a quantifiable indicator, or even the only universal quantitative indicator. Volatility is computable, objective and applicable to all assets with historical prices. The more fundamental reason is that price fluctuations are regarded as risks, which is a direct inference of market efficiency.
III. defects of volatility
Here are two examples:
\u3000\u30001. A shares rose slowly from 50 yuan to 80 yuan; B shares slowly fell from 50 yuan to 20 yuan. The volatility of the two is the same, but are the risks the same?
\u3000\u30002. Shanghai stock index rose to 5000 points in 2015, which is low risk in terms of volatility; Then it plummeted to 2500 points, which is a high risk in terms of volatility. Investors who equate volatility with risk actually take the historical volatility of an asset as an indicator of its future risk. Taking the bull bear conversion of Shanghai stock index in 2015 as an example, investors who agree with the volatility think that the bull market will last forever in the bull market and the bear market will last forever in the bear market.
IV. the truth of volatility
Over the past decade, those star stocks, whether Apple, Microsoft, Maotai or Gree, have experienced big fluctuations of more than 50%. If you think volatility is risk, are these stocks held by speculators** Permanent losses are very different from market fluctuations** The short-term market downturn is not a problem, and the permanent loss is irreversible. Maotai's 50% decline and LETV's 50% decline are not equivalent. The real risk comes from something wrong with the company's business. Investors should focus on the end result, not the process.
